Domestic consumption cushions Indonesian economy against global slowdown

Featured South East Asia - November 7th, 2012

Indonesia’s economy managed to stay afloat amid plunging economic growth that has bogged down emerging economies such as China and India.

Hurt by a slump in demand for export commodities such as palm oil and coal from China and India, Indonesia’s annual gross domestic product slowed ‘slightly’ to 6.2% in the third quarter this year from 6.4% in the previous quarter.

Still, Indonesia is doing well despite the global slowdown, buoyed by surging consumer demand. Domestic consumption accounts for 65% of GDP, cushioning the economy from a grim global outlook, according to Fauzi Ichsan, an economist at Standard Chartered in Jakarta.

“Weak exports will act as a drag on growth over the next year,” Gareth Leather, an economist at Capita Economics, said. “However, as a domestically-driven economy, Indonesia is relatively well-placed to withstand the impact of weaker global demand and should continue to outperform most of the rest of Asia”.

Consumer demand remains strong in the retail sector while foreign direct investment in Indonesia rose 22% year-on-year, reports the Financial Times.

Indonesia’s central statistics bureau warned that the country was not immune to global conditions and further slowdown in China and India could hurt the economy. The World Bank, which has forecast Indonesia’s GDP growth to be 6.1% this year, cautioned against complacency.